Here's an idea worth considering. If you are one of the fortunate few who has paid off your mortgage (or close to it) and own your home (nearly) free and clear, and you and your spouse are 62 or over, this is something you should at least look into.
A reverse mortgage is a kind of equity insurance. A mortgage lender will appraise the value of your home and loan you up to 80% ($625,500 in 2009) of that value in the form of monthly payments for the rest of your life (lives). The amount of the loan is determined by the appraised value of your home and the age of the owner(s). You must pay an upfront processing fee of 2% on the first $200,000 and 1% on any amount over that, up to a legal limit of $6,000. At the end of the day, (your life, that is), the mortgage company takes over the home and sells it to get back their investment. If you decide to move and sell the house, you must pay back the monthly payments you have accrued, plus interest.
Home, sweet...mortgaged home
Alternatively, this can be a strategy to stave off foreclosure of a home you have significant equity in. Under this scenario, the lender will pay off the outstanding mortgage and taxes. Now the home is free and clear and you can live there the rest of your life. Furthermore, you still own it. The lender will be repaid when you sell it or when you die. Oh, don't expect any monthly payments from the lender under this scenario.
The Generation Mortgage Company has a reverse mortgage calculator on their website (www.generationmortgage.com). I did a sample scenario where the home was worth $500,000, with a mortgage balance of $80,000. Under these conditions, the home owners (ages 62 & 65) would receive $805/month for life.
Caveat: Be sure to check out the upfront costs, such as origination fee, appraisal cost, closing costs, reverse-mortgage insurance fee and any monthly management fees.
Your heirs may not fully appreciate the benefits of reverse mortgages. There goes the kids inheritance -- the home, anyway. Hey, but you did a terrific job of raising them (didn't you?), and now it's time for them to fend for themselves.